By Kirsten Grind and Jason Zweig
Giant money manager BlackRock Inc. agreed to pay the Securities
and Exchange Commission $12 million to settle claims that it failed
to tell clients about a conflict between a fund manager's private
holdings and portfolios he supervised for BlackRock clients.
Daniel Rice III handled investments in energy companies for
certain BlackRock funds when he founded oil and natural gas
producer Rice Energy L.P. in 2007, according to the SEC. Rice
Energy later formed a joint venture with publicly traded coal firm
Alpha Natural Resources Inc., and by 2011 Alpha was the largest
holding in Mr. Rice's BlackRock Energy & Resources
Portfolio.
The SEC said Monday that BlackRock knew and approved of Mr.
Rice's involvement with Rice Energy as well as the joint venture.
He committed $50 million to the new firm between 2007 and mid-2010
and became its managing partner while his three sons held
high-level positions as chief executive, chief financial officer
and vice president of geology, the SEC said.
While BlackRock took some steps to mitigate the conflicts of
interest, it failed to disclose them to either the boards of the
BlackRock registered funds or its advisory clients, as required by
law. The SEC said then-chief compliance officer Bartholomew
Battista didn't recommend written policies and procedures to
monitor BlackRock employees' outside activities and disclose
conflicts of interest to fund boards and advisory clients. Mr.
Battista agreed to pay a $60,000 penalty, the SEC said.
The potential conflicts of interest involving Mr. Rice, who
didn't return a request for comment Monday, were first reported by
The Wall Street Journal in 2012.
As part of the settlement, BlackRock must bring on an
independent compliance consultant to do an internal review. "This
has been a learning experience for our firm," a BlackRock spokesman
said in a statement. New York-based BlackRock is the world's
largest asset manager with about $4.8 trillion in assets under
management.
BlackRock said it has taken steps to enhance its policies and
procedures related to employees' outside business activities. "As a
fiduciary for our clients, we take even the appearance of conflicts
of interest extremely seriously," the spokesman added.
Mr. Rice left BlackRock in December 2012, and Mr. Battista
currently is an adviser to BlackRock's legal and compliance
department and will depart at the end of the year.
Write to Jason Zweig at intelligentinvestor@wsj.com and Kirsten
Grind at kirsten.grind@wsj.com
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